With all the power of the internet available at our fingertips, we’d be hard pressed to find an area of our lives that technology hasn’t improved. There are many benefits to embracing technology, from the way we interact, shop, entertain ourselves, work and study. We can be better informed members of our community and make a bigger impact in whatever we choose to do by using digital technology as a tool.
So why should managing money be any different? Turns out, there’s an app for that.
More than one, in fact. There are several digital options available for whatever stage you’re in in your financial journey. From budgeting programs like Mint, micro-investing apps like Acorns, to alternative trading platforms such as Lending Loop and DiversyFund, average Americans are taking charge of their own money.
In a study by TD Ameritrade of 1,000 American investors, a fifth said technology’s greatest impact on everyday life has been on how they manage money (21%). Nearly 9 in 10 (88%) people said that technology is either a part of their finances (58%) or critical to their finances (30%).
FinTech Adoption In The U.S. 2015 to 2019
Source: Global FinTech Adoption Index 2019
Until a few years ago, direct investing outside of retirement plans was mostly accessible to the financially savvy, the connected or the experts who had the know-how to manage complex investment portfolios. The hassle of finding a good financial advisor, taking the time to fill out forms and questionnaires, and having to call a broker to make changes to your holdings was a barrier to entry for various income levels and age groups.
Now, people from all income levels and age groups are able to unlock investments in the stock market, real estate, bonds, cryptocurrency, and even pre-IPO startups, often within minutes.
The trend started with younger generations but is increasingly spreading to all segments of the population. Ease of use, access to more services and better experience often drive adoption for digital finance services.
Source: Global FinTech Adoption Index 2019
There are a few different digital technologies that make this possible:
Online stock trading platforms
Online stock brokers give investors access to the stock market and charge commissions and fees for providing trading tools and market data. Each platform may be slightly different based on its offerings and fees and can serve different types of investors. For example, active traders may lean towards a brokerage that offers low or zero commissions whereas beginners may want a brokerage with the best customer service and educational resources.
While online stock trading platforms are great for people who are familiar with the stock market, there are other platforms if you’re just starting out and need someone else to take care of the technical items. Robo-advisors are online investment services that act as traditional financial advisors by creating an investment portfolio for you based on your risk tolerance, but with minimal or no human intervention. Most robo-advisors start with short videos that explain investment basics and a questionnaire to assess timelines and risk, and use artificial intelligence to create a portfolio catered to your demographic.
Micro-investing platforms are great because they aren’t scary or intimidating. Most platforms allow you to get started with stock market investing with as little as $1 and can invest spare change from every transaction you make. While micro-investing can’t be relied upon to generate enough savings to retire on, it’s a great way to build interest in saving and investing especially for younger generations that may not have a lot of extra cash.
Alternative asset investing platforms
Asset types such as real estate and other alternatives require more of a specialized platform.
An interesting option for investors who are new to alternatives are REITs (Real Estate Investment Trusts), which provide a great way to add value and balance to an investment portfolio without needing to actively manage it. Platforms like DiversyFund’s offer opportunities to invest in a portfolio of real estate properties, essentially offering double diversification, starting with low minimums.
Other online alternative asset types are also available. Several platforms offer cryptocurrency trading in some states, along with options and derivative trading. Some startups offer shares of their companies on equity crowdfunding websites while fund of funds give the average investor exposure to hedge funds and mutual funds. Others even offer investing options in art, cars, wine or more alternative assets.
Most people use a combination of the above to build a robust digital finance system that works for them. While there may be downsides to life going digital, there is no denying that it has been a blessing during the current pandemic, with a 72% increase in the use of Fintech apps since the lockdown started. Most banks and financial services firms have transitioned entirely to online services where possible.
This trend is likely to continue even beyond the current crisis situation. By 2022, there will be three connected devices per person around the globe. This is an opportunity to empower people with the data and tools to grow their wealth. According to the TD Ameritrade study referenced earlier, when people have more investable assets, they are more likely to utilize technology to help manage their money: 38% of those with $250,000 or more versus 25% of those with under $100,000 said technology is crucial in managing their assets.
It’s easy to see that people are interested in using technology to further their money goals. By empowering the average investor to learn more about saving and investing, and enabling them to invest in new asset classes, we can transform the perception of money for ourselves and for generations to come.